In this financial marketplace dominated by goliath banks, credit unions stand apart due to their collaborative nature and commitment to service. Credit Union Service Organizations (CUSOs) have the same spirit of credit unions. A CUSO is an organization that is owned by credit unions in whole or in part that provides permitted financial services and/or operational services primarily to credit unions or their members.
CUSOs help credit unions compete with large financial institutions. According to data from Callahan & Associates’ CUSO Analyzer, there are more than 1,100 currently active CUSOs. Single credit unions own approximately two-thirds of these organizations. The remaining one-third are owned by multiple credit unions. Some prominent CUSOs include PSCU, LenderClose, CU Direct, CU Rise and BAFS.
CUSOs offer several advantages to credit unions. While there are numerous strategic reasons credit unions should be involved in CUSOs, here are four (4) considerations:
- Access to Innovative Technology – Fintechs bring technology expertise while credit unions bring loyal members, which can be a successful combination for both organizations as well as for members. Since digital platforms are constantly evolving in the new digital first world, Fintech and technology centric CUSOs help credit unions access new delivery channels and enhance their technology capabilities. Pure IT and LenderClose are two interesting examples. LenderClose brings loan technology into the relationship-based credit union industry. They help credit unions capture members and business in part by offering a state-of-the-art solution. Pure IT is a CUSO that helps credit unions accelerate their digital transformation and technology strategy.
- Achieve Economies of Scale – Economies of scale are achieved when a credit union increases volume, say with transaction numbers, and then benefits from a lower vendor price per transaction. CUSOs enable credit unions to share the risks and costs of providing services to members. CUSOs could specialize in a given product or service which enables them to provide higher value products and services at a lower cost (per unit) to credit unions. Many times credit unions that do not want to merge for scale benefits collaborate with CUSOs to obtain economies of scale. Guy Messick, affectionately known as CUSO Guru, in his book Credit Union Collaborations points out, “Scale is king…There are only three choices for credit unions to grow scale quickly: merge, buy bank assets and collaborate.” In most cases, we also advocate the last option – with CUSOs.
- Expand Services – A CUSO can help a credit union expand services to a broader market. There are many examples of credit unions coming together to form a CUSO to provide a specific service. This CUSO then also provides services to other credit unions that are not part of the collaboration as owner members, thereby increasing the earning power of the credit unions that formed the CUSO. Business Alliance Financial Services (BAFS) is a good example. BAFS is a full-service CUSO that offers an interactive and cost-effective approach to establish and maintain a Commercial Loan Program. Commercial lending CUSOs like BAFS help credit unions of all sizes to better serve their communities while increasing income potential.
- Generate Non- Interest Income – Interest income is not enough for a credit union to thrive, especially today in this ultra-low interest rate environment. CUSOs are an excellent source of non-interest income for credit unions. CUSOs facilitate the generation of income from services to members such as insurance and investment products.
CUSOs help credit unions solve problems and leverage a wide array of expertise. Proactive credit unions that partner with and get involved in CUSOs can offer their members innovative services thereby increasing engagement and attracting new members.